A friend and I were working together this last week on a business plan he is putting together for the company he works for. He is taking at look at bringing a few new products into the market he currently serves. So we were talking about typical business model topics like his value proposition and mission statement. The issue that really started getting me excited was trying to figure what his potential product quality and price points were going to be. His proposal depends heavily on understanding these two pieces and how they relate to the competitions strategy. So I wanted to use this post to share some of the takeaways from that conversation.
Commodity VS Value Proposition Pricing
The above matrix is one you can use in order to understand which market sector you are targeting. It is essentially the different price vs. quality strategies a manger can use to service various sectors of the market. A couple of points to think about as you look this matrix over:
- Economy and cheap = commodity products
- Expensive, premium, and good buys = value proposition products
- If you pick a value proposition strategy, you have to be able to communicate (i.e. sell) that value.
- All of these strategies have some validity and service a sector of the market. For example, Walmart offers an economy product (low price and low to equal quality). BMW and Apple both offer premium quality products.
- The two strategies that do not work are Bad Buy’s and Rip-Off’s. If you are currently offering a low quality product at a high price, it won’t be long before a competitor enters the market and offers a higher quality product and the same price. Plus, you are obviously good at sales so you need to go find a high quality product to sell. You will end up making a lot more money.
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